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Financial Services Law Insights and Observations

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  • CFPB fines student loan servicer $3.9 million for unfair practices

    Federal Issues

    On May 1, the CFPB announced a $3.9 million settlement with a student loan servicing company. The settlement resolves allegations that the company engaged in unfair practices by failing to make adjustments to loans made under the Federal Family Education Loan Program to account for circumstances such as deferment, forbearance, or entrance into the Income-Based Repayment (IBR) program. According to the consent order, between 2005 and 2015, certain accounts requiring manual adjustments to principal loan balances based on program participation were allegedly placed in “queues” to process the adjustments, which took, in some cases, years to process. The servicer allegedly did not inform affected borrowers that it did not complete the processing of their principal balances associated with the deferment, forbearance, or IBR participation. The queues allegedly resulted in some borrowers paying off incorrect loan amounts and other borrowers experiencing delays in loan consolidation while waiting for the servicer to adjust principal balances. In addition to the $3.9 million civil money penalty, the consent order requires the servicer to make the proper adjustments to the principal balances of the affected accounts or pay restitution to borrowers who paid off loans with inaccurate loan balances. The servicer is also required to comply with certain compliance monitoring, reporting, and recordkeeping requirements.

    Federal Issues CFPB Enforcement Consent Order Student Lending Civil Money Penalties Settlement UDAAP

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  • FTC hits online student loan lender with order

    Federal Issues

    On February 25, the FTC announced it has approved a final consent order with an online student loan refinance lender resolving allegations that the lender violated the FTC Act by misrepresenting in television, print, and internet advertisements how much money student loan borrowers can save from refinancing their loans with the company. As previously covered by InfoBytes, the FTC alleged that the lender inflated the average savings consumers have achieved by refinancing through the lender, in some instances doubling the average savings by selectively excluding certain groups of consumers from the data. Additionally, the FTC also alleged that in some instances, the lender’s webpage misrepresented instances where a loan option would result in the consumer paying more on a monthly basis or over the lifetime of the loan, simply stating the savings would be “0.00.” In October 2018, without admitting or denying the allegations, the lender agreed to a consent order that required it to cease the alleged misrepresentations and agree to compliance monitoring and recordkeeping requirements. Following a public comment period, the FTC Commission voted 5-0 to approve the final consent order.

    Federal Issues Lending Student Lending FTC Enforcement FTC Act Settlement Consent Order

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  • OCC releases February 2019 enforcement actions

    Federal Issues

    On February 15, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include a civil money penalty order against an individual, a notice of prohibition against an individual, and three removal and prohibition consent orders against individuals, and a cease and desist consent order described below.

    On January 7, the OCC entered into a consent order with a federal savings bank related to allegations of unsafe or unsound banking practices. The OCC alleges the bank failed to implement and maintain an effective compliance management system, risk governance framework, and information technology (IT) program. Among other provisions, the order requires the bank to develop written plans to strengthen the compliance, risk governance, and IT programs, and requires the Board to ensure the bank has adopted and implemented all the corrective actions required by the order. The bank neither admits nor denies the allegations and the OCC did not assess any monetary penalties against the bank.

    Federal Issues OCC Enforcement Bank Compliance Risk Governance Consent Order

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  • NYDFS and international bank enter into second supplemental consent order over BSA/AML compliance deficiencies

    State Issues

    On November 21, NYDFS and an international bank entered into a second supplemental consent order covering its settlement over alleged deficiencies in the bank’s Bank Secrecy Act/anti-money laundering and Office of Foreign Assets Control (OFAC) compliance program controls. As previously covered by Infobytes, in 2012, the bank agreed to engage an independent on-site monitor for 24 months to evaluate the New York branch’s BSA/AML and OFAC compliance programs and operations and was issued a $340 million civil money penalty. In 2014 NYDFS issued a subsequent consent order outlining the monitor’s findings, including reports of significant failures in the bank’s transaction monitoring. The 2014 order extended the engagement of the monitor for another two years, outlined remedial measures to address continued deficiencies, and required the bank to pay an additional $300 million civil money penalty. In April 2017, NYDFS and the bank entered into the first supplemental consent order to modify the 2012 and 2014 orders, acknowledging the bank made significant improvements in its BSA/AML compliance program but extended the monitor through December 2018 with all the other terms and conditions of the 2012 and 2014 consent orders remaining in full effect.

    Now, beginning January 1, 2019, the second supplemental order issued by NYDFS requires the bank to engage an independent consultant, selected by the regulator, for a period of up to one year, with a possible extension of one additional year, to provide guidance for completing remediation called for in the 2012 and 2014 consent orders. In response to the second supplemental order, the bank stated it remained “committed to completing the remaining tasks necessary for that remediation.”

    State Issues NYDFS Financial Crimes Bank Secrecy Act Anti-Money Laundering Compliance Consent Order

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  • Auto lender pays $11.8 million to resolve investigation into add-on product and loan extension program

    Federal Issues

    On November 20, the CFPB announced a settlement with a Texas-based auto lender to resolve allegations that the lender violated the Consumer Financial Protection Act by deceptively marketing an auto-loan guaranteed asset protection (GAP) add-on product and misrepresenting the impact on consumers of obtaining a loan extension. Regarding the GAP add-on product, which was intended to cover a “gap” between the consumer’s primary auto insurance payout and the consumer’s outstanding loan balance in the event of a total vehicle loss, the CFPB alleged that the lender failed to disclose to consumers that if their loan-to-value was greater than 125 percent, they would not receive the “true full coverage” advertised with the GAP add-on product. Regarding extensions of auto loans, the CFPB alleged, among other things, that the lender failed to “clearly and prominently” disclose that interest accrued during a loan extension would be paid before principal when the consumer resumed making payments on the extended loan. Under the order, the lender must, among other things, (i) pay $9.29 million in consumer restitution; (ii) clearly and prominently disclose the terms of the GAP add-on product and loan extension; and (iii) pay $2.5 million in a civil money penalty.

    Federal Issues CFPB Settlement Consent Order Auto Finance Interest Rate

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  • FTC settles with online student loan refinance lender for allegedly deceptive marketing

    Lending

    On October 29, the FTC announced a settlement with an online student loan refinance lender resolving allegations the lender violated the FTC Act by misrepresenting in television, print, and internet advertisements how much money student loan borrowers can save from refinancing their loans with the company. The complaint alleges that the lender inflated the average savings consumers have achieved refinancing through the lender, in some instances doubling the average savings by selectively excluding certain groups of consumers from the data. The complaint also alleges that in some instances, the lender’s webpage misrepresented instances where a loan option would result in the consumer paying more on a monthly basis or over the lifetime of the loan, simply stating the savings would be “0.00.” Although the lender did not admit or deny any of the allegations, it agreed to a consent order that requires it to cease the alleged misrepresentations and agree to certain compliance monitoring and recordkeeping requirements.

    Notably, Commissioner Rohit Chopra issued a concurring statement in this matter suggesting that in instances where the FTC is unable to obtain monetary remedies, it should seek to partner with other enforcement agencies that have the additional legal authority to obtain monetary settlements from the targets of the FTC enforcement action.

    Lending Student Lending FTC Enforcement FTC Act Settlement Consent Order

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  • CFPB imposes $200,000 fine on small dollar lender for deceptive debt collection practices

    Federal Issues

    On October 24, the CFPB announced a settlement with a Tennessee-based small dollar lender, resolving allegations that the lender violated the Consumer Financial Protection Act (CFPA). Specifically, as stated in the consent order, the CFPB alleges that the lender (i) deceptively threatened to sue consumers on time-barred debts; (ii) misled consumers that the lender would report late payments to credit reporting agencies when the lender did not; and (iii) abusively set-off previous loans by telling its employees not to tell check-cashing consumers that it would deduct previous amounts owed from the check proceeds. Consequently, the Bureau alleged that the lender took “unreasonable advantage of the consumers’ lack of understanding” that the lender would take a portion of the check they intended to cash and physically kept the check away from consumers until the transaction was complete, which “nullified” any written set-off disclosures when the consumer signed his or her agreement. In addition to the $200,000 civil money penalty, the consent order requires the lender to (i) pay approximately $32,000 in restitution to consumers, and (ii) establish a compliance plan with detailed steps and timelines for complying with applicable laws.

    Federal Issues CFPB Settlement Consent Order Payday Lending Check Cashing CFPA

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